A trust is a legal entity that holds assets for the benefit of another. Basically, it’s like a container that holds money or property for somebody else. There are three parties in a trust arrangement:
The grantor (also called a settlor or trustor): The person(s) who creates and funds the trust
The beneficiary: The person(s) who receives benefits from the trust, such as income or the right to use a home, and has what is called equitable title to trust property
The trustee: The person(s) who holds legal title to trust property, administers the trust and has a duty to act in the best interest of the beneficiary
You create a trust by executing a legal document called a trust agreement. The trust agreement can be a separate legal document or created through your last will and testament. The trust agreement names the beneficiary and trustee and contains instructions about what benefits the beneficiary will receive, what the trustee’s duties are, and when the trust will end, among other things.
Potential trust advantages:
Minimize estate taxes
Shield assets from potential creditors
Avoid the expense and delay of probate
Preserve assets for your children until they are grown (in case you should die while they are still minors)
Create a pool of investments that can be managed by professional money managers
Set up a fund for your own support in the event of incapacity
Shift part of your income tax burden to beneficiaries in lower tax brackets
Provide benefits for charity
Provides an impartial party to carry out the requests of the deceased as described in their will.
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